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The Ongoing Legal Saga of Martin Shkreli

When we last checked in on former pharmaceutical executive Martin Shkreli, he had just been indicted for securities fraud and related charges. Shkreli – a/k/a the “pharma bro” and “most hated man in America” – is best known for purchasing the rights to an anti-cancer drug called Daraprim and promptly raising the price by 5,000%. His defiant attitude in the face of the resulting outcry, along with his insult-laden Twitter feed, only heightened his notoriety.

Pharma Bro Martin Shkreli

But Shkreli’s indictment last December had nothing to do with extortionate drug prices. The charges are based on Shkreli’s earlier conduct at two different hedge funds and at a company he founded called Retrophin. Shkreli allegedly defrauded his hedge fund investors by lying to them about their investments, and then defrauded Retrophin by wrongfully using company assets to settle claims from those hedge fund investors. An attorney who worked as Retrophin’s outside counsel, Evan Greebel, was charged with Shkreli in one count of conspiracy. (You can read a more detailed analysis of the indictment in my earlier post here.)

The criminal proceeding against Shkreli and Greebel is still in the early stages, but there have been a couple of interesting related developments in the past couple of weeks.

Congressional Testimony – or Lack Thereof

Shkreli was subpoenaed to testify last Thursday, February 4, before the House Committee on Oversight and Government Reform. The committee was holding a hearing about skyrocketing drug prices, and the incident where Shkreli raised the price of Daraprim by 5,000% was Exhibit One.

Shkreli’s attorney made it clear in advance of the hearing that Shkreli would invoke his Fifth Amendment right against self-incrimination. That was no surprise. Even though the hearing was not specifically about Shkreli’s criminal case, there would be too much risk that something he said might end up facilitating his own prosecution. Almost any lawyer would likely give him the same advice.

Shkreli’s lawyer asked that his client be excused from attending the hearing, since he was not going to be able to answer questions. But Congress insisted that he appear, threatening him with additional criminal sanctions if he ignored the subpoena. And so, in a familiar Washington theater production, Shkreli sat before the committee, with his attorney in the “I am not a potted plant” seat directly behind him, and repeatedly invoked his right to remain silent in response to every question.

This type of scene unfortunately plays out quite regularly on Capitol Hill. In most legal proceedings, if a witness is going to take the Fifth it is relatively rare for him to be called to the stand. There may be a hearing before a judge to determine whether the assertion of privilege is valid, but if it is, the witness generally will not be forced to appear simply to assert the privilege over and over. For one thing, it’s a waste of everyone’s time if the witness is not going to answer. But more important, it is grossly unfair: repeatedly forcing a witness to assert his right to remain silent can’t help but lead to the impression he is hiding something and must have done something wrong. What should be a constitutional shield is turned into a bludgeon wielded to suggest the witness must be guilty of something – if not, why not answer the questions?

But Congress routinely compels witnesses to appear even when it is perfectly clear they are going to take the Fifth. Then they pepper the witness with speeches masquerading as questions, forcing the witness repeatedly to invoke his or her right to remain silent.

This is a tawdry business. Perhaps the reason it continues is that some Members of Congress are less concerned about actually getting answers and more concerned with trying to create a good video clip that will get replayed on cable news or social media. And indeed Shkreli’s brief appearance was a made-for-TV event, carried live on CNBC and elsewhere.

Shkreli didn’t do his image any good at the hearing. He smirked, rolled his eyes, and generally seemed annoyed that he had to be there. After he was finally excused, he sent out a Tweet calling the Members of Congress “imbeciles.”

But if Shkreli didn’t exactly cover himself in glory, neither did the Members of the committee. I’m no apologist for the pharma bro, but this practice of publicly pillorying a witness who is simply asserting his basic constitutional rights is pretty disgraceful.

Congress may be one of the few things in this country currently held in lower esteem than Shkreli. The spectacle before the House committee last week will do nothing to boost the approval ratings of either.

Attorney-Client Privilege – or Lack Thereof

In another development, we learned a couple of weeks ago that back in December U.S. District Judge Jack Weinstein ruled the grand jury investigating Shkreli could have access to emails that Shkreli and his former company had claimed were protected by attorney-client privilege.

One aspect of the fraud charged in Shkreli’s indictment relates to Retrophin, the pharmaceutical company he founded in 2011 and took public in 2012. The indictment charges that Shkreli defrauded Retrophin by using its assets to pay off debts that Shkreli incurred while running his hedge funds.

While acting as CEO of Retrophin and engaging in the alleged fraud, Shkreli had email exchanges with his outside counsel (and now co-defendant) Evan Greebel. Greebel, who is now a partner with Kaye Scholer LLP, was employed at the law firm of Katten Muchin Rosenman LLP at the time.

The grand jury subpoenaed documents from Retrophin, including copies of emails between Shkreli and Greebel. Retrophin produced the emails but redacted many of them, based on a claim by Shkreli’s attorney that the documents were protected by the attorney-client privilege.

Normally, of course, communications between attorney and client would be privileged and would not need to be produced. But the privilege is subject to something called the crime-fraud exception: if the client communicates with the attorney in furtherance of a crime or fraud, the law will not protect those communications.

The exception applies only if the communications are used to further an ongoing or future crime or fraud. If a client communicates with a lawyer about past criminal conduct, that of course is fully protected. Indeed, such communications are at the very heart of the privilege in the criminal context.

But a client will not be allowed to use an attorney’s services to help him commit a crime and then turn around and try to protect the very communications with counsel that made the crime possible. In other words, clients are not allowed to convert the shield of the attorney-client privilege into a sword that affirmatively helps them engage in criminal activity.

The crime-fraud exception can apply even when the attorney doesn’t know about the criminal conduct. I recall one case where I was arguing as a prosecutor that the crime-fraud exception applied to certain communications between a major corporation and its lawyers. Some of those communications were with a very distinguished former DOJ official who was now a partner at the firm. The firm brought him into the courtroom during the hearing to sit in the front row and glower at the judge, while the corporation’s lawyers expressed outrage at the suggestion that this gray-haired pillar of the bar might have been involved in any criminal activity.

It was all for show, of course — more theater — because the attorney does not need to be involved. The client may be lying to his own counsel, just as he is to the victims of his fraud. If the attorney was deceived by the client and was assisting in the crime or fraud unwittingly, the privilege may still be overridden. The focus is on what the client intended, not on the intent or knowledge of the attorney.

In this case, of course, the government has done more than simply allege the attorney was involved – it has indicted the attorney, Greebel, as a co-defendant. Although it’s not legally required, that the attorney has been charged as a co-conspirator in committing the alleged fraud certainly bolsters the government’s argument for the crime-fraud exception.

The burden is on the government to establish that the exception applies. In support of its claim, the government submitted a 47-page affidavit from an FBI agent involved in the investigation. The affidavit alleges that the emails in question directly relate to fraudulent activities carried out by the co-defendants, including the backdating of documents to deceive the SEC and the creation of other phony documents used to defraud Retrophin.

In a December 3 order that was just recently unsealed, Judge Weinstein agreed with the government that the emails were not privileged. He noted first that to the extent the communications between Shkreli and Greebel related to Retrophin’s business, the privilege belonged to the company, not to Shkreli, and the company had already waived any privilege claims. But even if there were a personal attorney-client relationship, the judge ruled, “exchanges in redacted emails between the attorney [Greebel] and employee [Shkreli] were part of a scheme, conspiracy or fraudulent attempt to commit a securities fraud. The attorney-client relationship and privilege, if any, is voided by the criminal conduct.”

Accordingly, the unredacted emails were produced to the grand jury, were referenced in the indictment, and will undoubtedly play a major role at trial. There’s a reason prosecutors often say that “email” is short for “evidence mail” – it is frequently a rich source of incriminating information.

The fact that Shkreli was unable to shield his communications with his alleged co-conspirator attorney is not particularly surprising, but it nevertheless has to be considered a blow to the defense.

And in other news, Shkreli recently replaced his legal team with a celebrity lawyer who previously defended rappers Jay Z and Sean “Diddy” Combs. It appears this is only going to get weirder. Stay tuned.

Update: On August 4, 2017, a jury found Shkreli guilty of one count of conspiracy and two counts of securities fraud.